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Iowa Ag Review

Abstract

Crop farmers are enjoying record high profi ts because of dramatically higher market prices. Farmers’ increased demand for land, seed, fertilizer, and machinery has resulted in higher prices and profi ts for sellers of these inputs as well. One industry that is also enjoying the higher crop prices is the crop insurance industry. It benefits from higher prices because the formulas used to determine industry revenue automatically generate higher expected subsidies as crop prices rise. Actual subsidies depend in part on crop losses, but administrative and operating subsidies are directly tied to crop prices. Figure 1 shows how total industry revenues from insuring the nation’s corn, soybean, wheat, and cotton farmers have risen in recent years. Revenues could rise by another 25 percent in 2008 if crop losses are similar to those in 2007.